Business banking and credit for contractors

Build business credit before a cash shortage by keeping reliable financial records, paying reporting suppliers on time, and comparing borrowing terms. Size a line of credit around the weeks when job costs leave your account before customer payments arrive.

For account-opening documents and separating personal spending, see separating business and personal money. This guide focuses on credit and the cash gap between jobs.

Keep records a lender can assess

Keep business transactions separate, retain receipts, and reconcile the account to your books. A business-account charge is not automatically a deductible expense. Before applying, ask the lender which financial statements, tax returns, debt details and job-payment records it needs.

Build payment history and read the guarantee

A business credit record can help a lender or supplier assess your payment history. It does not promise approval or replace a review of your cash flow. A lender may also review your personal credit and require a personal guarantee, which makes you personally responsible under its terms even if the borrower is an LLC.

• Ask suppliers whether they report payment history to a business credit bureau and under which business identity.
• Check the reports lenders use and dispute incorrect information.
• Pay on time. Do not buy unnecessary goods or borrow solely to create activity.
• Read guarantees and collateral terms. Check who must repay, what property secures the debt, and when the lender may stop further draws.

The FDIC's small-business loan guide explains why lenders review both business finances and personal credit.

Size a line of credit on your worst overlap, not on your revenue

For short-term working capital, size a line around the gap between paying job costs and collecting customer payments. Check that its permitted uses and repayment terms fit that purpose.

These fictional figures show $8,000 of materials still unfunded in week 4. The service calls were paid in week 2, so their costs are no longer outstanding. This is not the whole cash requirement: add payroll, overhead, taxes and existing debt payments by week, then subtract available cash and expected receipts. Stress-test a late payment before choosing a borrowing limit.

Interest is normally charged only on what you draw, which is the point of a line over a term loan. Compare the whole fee schedule — annual or maintenance fees, per-draw fees, a fee on the unused portion — not just the rate quoted on the phone.

The line stops working the moment it funds losses instead of timing. If the balance does not fall after customers pay, check for losses, slow collections or longer-term purchases being funded by short-term debt before drawing more.

Decide the gap before you borrow against it

Material spending and the timing of customer payments both affect the uncovered amount. That is easy to settle on the walkthrough and easy to lose by the time paperwork goes out. In DoneQuote you can write the permitted deposit and payment schedule in the quote terms. Review the amounts and milestones before sending, and use actual payment records for cash-flow planning.

Prepare before applying

1. Reconcile the books and prepare the financial records the lender requests.
2. Check your business and personal credit reports where relevant.
3. Forecast weekly cash needs, including a delayed customer payment.
4. Compare total fees, interest, guarantees, collateral and renewal conditions.
5. Apply with enough time to consider alternatives before a payment is due.